There has been a steady drumbeat of articles warning about stricter housing regulations coming in the second-half of 2018. Seven ministries met in June to discuss the housing market’s refusal to cool in many cities.

This latest article drives the point home, describing the market situation as chaotic in 30 cities and warns a crackdown is coming. There’s not much new here if you’ve been following the story closely, but I am posting it because of the tone.

Chinese media tend to shy away from using terms such as chaos to describe a wide swatch of the economy (it isn’t unheard of to describe the stock market, or a single city’s housing market) and the tone around the “crackdown” indicates the regulators are highly motivated.

The practice of rectifying market order stems from a special action by seven ministries. On June 28, the Ministry of Housing and Urban-Rural Development and other seven ministries jointly issued a notice, deciding to carry out special actions to control the real estate market chaos in 30 cities including Beijing and Shanghai from the beginning of July to the end of December 2018.

The recent policy is a continuation of this action, and the scope has exceeded the above 30 cities. For example, Henan Province issued a document on July 9th, which intends to regulate the sales behavior of commercial houses in the province, maintain the order of trading in the real estate market, and protect the legitimate rights and interests of the people who buy houses. Shaanxi Province also issued a detailed rule on July 6, standardizing the fair process of commercial housing. For the first time, Zhejiang has launched a “double random” spot check with the special inspection of real estate development enterprises as the entry point.

In addition, Foshan, Dali, Xishuangbanna, Linyi, Zaozhuang, Xichang and other cities have also issued documents to regulate the order of commercial housing market. These cities are not within the scope of 30 cities designated by the seven ministries.

Zhang Dawei, chief analyst of Zhongyuan Real Estate, believes that the inspection of the real estate market order by the seven ministries and commissions is different from the previous regulation.

The intensive introduction of these policies, in addition to continuing the pace of regulation in the first half of the year, has an important market background.

According to the data of Shanghai Yiju Research Institute, in June this year, the transaction area of ​​newly built commercial residential buildings in 40 typical cities was about 30.57 million square meters, an increase of 7% from the previous month and an increase of 17% from the same period last year. After a brief downturn, the market continued to heat up in May and June. The agency also pointed out that from the market performance, the first-line downturn, the second-line weak, the third- and fourth-tier cities are extremely hot, especially the third- and fourth-tier cities that have not implemented regulation.

Chaos is also produced at this time. According to the survey of economic reports in the 21st century, many cities have a phenomenon of existing home prices upside down, and some cities that have introduced the swaying policy have also fallen into the situation of looting houses. Zhongyuan Real Estate also pointed out that “the rising pressure on housing prices” and “the rise in investment speculative demand” are also recent phenomena.

New homes typically sell at a premium to existing homes in China (for the same location), but an inverted price structure emerged this year after local governments ramped up housing regulations.

The more extreme regulations such as housing lotteries have increased speculative fever, but with tight controls on new construction and below market pricing, speculators moved on to higher priced and less regulated existing homes.

Prices should come down later in the year as developers squeezed for financing move property to recoup capital, in addition to the government’s all out price suppression effort.

CITIC Construction Investment also said that the market supply scale will be further released in the second half of the year. On the one hand, the housing supply enterprises began to usher in the peak of supply in the third quarter, and on the other hand, in the environment where the financing environment is becoming stricter this year, the housing enterprises are out of cash. Streamline considerations will also accelerate the push to achieve cash withdrawals. This will also bring the heat of sales in the real estate market in the third quarter to continue.

Yan Yuejin, director of the think tank center of Shanghai Yiju Research Institute, holds different views. He told the 21st Century Business Report that the third quarter is the time when the market is facing the most bad news. The transaction volume of the real estate market may decline, even negative year-on-year. In the fourth quarter, due to the impact of annual performance, companies are likely to accelerate the pace of pushing goods and promote transaction volume.

This won’t end well.

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